Opting out of federal student loan programs: examining the community college sector. Nicholas Hillman University of Wisconsin-Madison

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1 RUNNING HEAD: Opting Out Opting out of federal student loan programs: examining the community college sector Nicholas Hillman University of Wisconsin-Madison Ozan Jaquette University of Arizona Author s Note: Paper presented at 2014 Association of Education Finance and Policy (AEFP) conference. San Antonio, TX. Last updated: March 8, This is a working paper, please do not cite without author s permission. Contact: Nick Hillman,

2 Opting Out 1 Introduction To pay the rising price of college tuition, students are becoming increasingly reliant on federal loans. Nationally, 40 percent of undergraduates take out federal loans to help pay for college and this figure has steadily risen over the past two decades (National Center for Education Statistics, 2013). This figure varies across the different sectors of higher education, where 50 to 60 percent of undergraduates attending four-year colleges (public or private) borrow federal loans and about 75 percent borrow in the for-profit sector. Borrowing rates are low at community colleges because of their relatively low tuition levels that can (largely) be covered by the federal Pell Grant. This was especially true in the early 1990s and 2000s, when only about 5 percent of students borrowed student loans (National Center for Education Statistics, 2011). Today, approximately 17 percent of students attending community colleges borrow federal loans. Community college students are not only borrowing at higher rates than a decade ago, but they are also borrowing more money. The average community college student borrowed approximately $3,000 per year in the late early 2000s, but now borrows $4,700 per year (National Center for Education Statistics, 2011, 2013). Borrowing money to pay for college is not necessarily a public policy problem, but when that debt becomes unmanageable or when borrowers fail to repay these debts, then problems emerge. This has been the case across all sectors of higher education, where national student loan default rates have steadily risen over the past decade and today approximately one in six federal borrowers default on their loans within three years of entering repayment (U.S. Department of Education, 2013). Because of this trend, public policymakers and campus leaders are seeking ways to make college more affordable and to help students manage their debts so they can avoid default and delinquency.

3 Opting Out 2 When a borrower defaults on their loan (270 days of delinquency), the federal government utilizes a range of collection mechanisms including wage garnishment, seized tax refunds, and even litigation to ensure the borrower repays their debt. There is no statute of limitations or bankruptcy protection on defaulted loans, and borrowers can be restricted from participating in other federal student aid programs (e.g., Pell Grants, income-based repayment, etc.) until their defaulted loan has been rehabilitated. Defaulting on a federal student loan can bring a lifetime of hardships, which is why financial aid professionals on college campuses try to help students understand the implications of borrowing and repaying these loans. This is why it is important for financial aid officers to help borrowers understand the long-term risks and rewards of financing a college education on credit. Colleges are also interested in helping their students manage loan debt because the federal government will sanction institutions whose Cohort Default Rate (CDR) is too high. If more than 30% of a borrowing cohort defaults on their loans within three years of entering repayment, then the college runs the risk of losing access to federal Title IV student aid programs (e.g., Pell Grants, student loans, and work-study). To avoid these sanctions, colleges provide financial literacy programs, financial aid information sessions, and one-on-one consulting to help students manage debt burdens and hopefully avoid default. These efforts are designed to also help borrowers understand the risks associated with taking on debt and to inform them about the federal emergency protection programs that exist if a borrower gets behind on their payments. For example, borrowers who face economic hardship (i.e., unemployment, health condition, etc.) can opt into deferment or forbearance programs that temporarily suspend their loan payments to help them avoid default.

4 Opting Out 3 While information sessions and financial literacy programs are standard strategies colleges use to help students manage their loan debts, some have adopted a more blunt strategies for avoiding federal CDR sanctions: They have simply opted out of federal loan programs altogether. These colleges do not provides students with the option of borrowing federal student loans. Federal law does not prohibit colleges from doing this, so each year there are hundreds of colleges that provide no federal loans to their students. These colleges can still disburse other forms of federal student aid, like Pell Grants and work-study, but federal loans are unavailable to students. There has been little descriptive or inferential research conducted on this topic, though some observers have found a large share of community colleges have opted out of loan programs in recent years (The Institute for College Access and Success, 2011). Accordingly, this study seeks to understand this phenomenon in more detail by asking the following research questions: Policy context 1. How extensive has the opt out phenomenon been over the past decade? 2. Among community colleges, to what extent are: cohort default rates, local unemployment rates, the racial/ethnic profile of students, and the share of students receiving federal grant aid associated with opting out of federal loan programs? Community colleges students have not traditionally relied on loans to finance their education, at least not as much as students enrolled in other sectors. Among community college students, federal grant programs tend to play a larger role in financing college than do loans. Only about 17 percent of community college students borrow federal loans, but nearly 40 percent receive federal grant aid. With this context in mind, opting-out of federal loan programs is a strategy colleges can use to ensure they retain access to federal grant programs without fear of CDR sanctions. Considering how few students borrow in this sector, the threat of being penalized for the actions of a small share of students (i.e., borrowers who default) can disproportionately harm

5 Opting Out 4 students who are aided by other Title IV programs (i.e., federal grant recipients). This creates a perverse incentive for colleges to opt out of loan programs in order to protect access to federal grant aid. An example will illustrate the case. In 2012, San Bernardino Valley College (a community college in California) had an official CDR of 21 percent, putting them close to the federal government s sanction threshold of 30 percent. Notably, this college only had 156 students included in its borrowing cohort, 33 of whom defaulted on their loans. That same year, the college disbursed more than $18.6 million in federal grant aid to 5,919 students. The college risks losing $18.6 million that helps thousands of students for the outcome of 156 borrowers. When considering the enrollment profile of this college, eight of every ten students are nonwhite and about one in three receive federal grant aid. For more context, the college is located in a community that has relatively high unemployment rates (11 percent) and its average tuition and fees is very low ($795). To maintain access to federal grant programs, it is not surprising that the college opted out of its loan program in Since federal aid policy does not require colleges to participate in student loan programs, it is up to each campus discretion to determine whether it is in their best interest to offer loans. If they choose to opt out, then students will likely turn to private loans to finance their educational expenses. These loans typically carry higher interest rates and have none of the benefits (i.e., emergency protections, income-based repayment, etc.) provided by federal loans (Consumer Financial Protection Bureau, 2012). California community colleges are not the only institutions opting out of federal loan programs. In North Carolina, there has been an ongoing and highly contested debate about whether colleges can opt out of loan programs. Over the course of several years, dozens of the state s 58 community colleges had stopped offering federal loans; by 2010, only 20 community

6 Opting Out 5 colleges were participating in federal loan program. In an effort to increase participation in loan programs, the state legislature passed a bill requiring all community colleges to participate in the William Ford Federal Direct Loan Program, beginning in July of 2011 (General Assembly of North Carolina, 2011). In 2011, however, the state legislature passed two new bills stripping this requirement and allowing federal student loan participation to be optional and up to the discretion of each college (Davis, 2011). Concerned that opting out of loan programs would negatively affect college access and affordability, Governor Bev Perdue vetoed the bill and it never became law. Community college would still be required to participate in federal loan programs beginning in July of In yet another turn of events, the House overrode the Governor s veto in 2012, so colleges are still allowed to opt out of the loan programs (Huckabee, 2012). As displayed in Figure 1, 29 states had at least one community college opt out of federal loan programs between the years 2002 and 2012 (the years used in this analysis). [Insert Figure 1 about here] Conceptual perspectives To understand why a community college might opt out of federal student loans, we draw from principal-agent theory (PAT). From the PAT perspective, principals are expected to have policy goals that they cannot achieve on their own, so they enter into a contract with an agent who is charged with meeting the principal s goals (Lane & Kivisto, 2008). Although agents are expected to work on behalf (and in the best interest) of the principal, there is sometimes goal conflict between the two parties where agents may be inclined to pursue their own interests rather than the principal s. Agents are expected to be self-motivated actors that seek to maximize their own wellbeing before maximizing that of the principal. Because of this, principals impose a range of oversight and monitoring functions to hold agents accountable for making progress

7 Opting Out 6 towards the principal s goals. In the absence of monitoring, agents might shirk on their responsibilities by underperforming or disengaging from the principal s priorities. Under the PAT framework, goal conflict can create agency problems (Waterman & Meier, 1998). In an effort to prevent shirking, principals design financial incentives and penalties tied to performance to hold agents accountable to their goals. But since agents are often experts in whatever service they deliver on behalf of the principal, they also have more information about whether, when, or how they will achieve the principal s goals. With this information, the agent may minimally meet the principal s objectives in order to then pursue their own goals. Monitoring and incentive structures are designed to reduce these asymmetries, thus reducing shirking, though it is important to considering that not all shirking is due to the agent s opportunistic behavior or abuse of autonomy. Instead, if a principal creates contradictory or ambiguous performance goals for the agent, or of those goals leave the agent worse-off, then the agent may be less likely to achieve these principal s goals (Braun & Guston, 2003). Goal conflicts and information asymmetries are two reasons why federal policymakers might fall short on their goals of increasing college access and helping students afford college. When applied to this study, the U.S. Department of Education is the principal who disburses federal financial aid to colleges (agents) through Title IV of the Higher Education Act. To disburse federal aid, a college must be accredited by one of the 25 regional or national accreditation agencies recognized by the Secretary of Education (U.S. Department of Education, 2014). Colleges must also enter into program participation agreements that spell out the criteria they must follow in order to disburse federal aid. Here, the performance agreement represents the contract between the principal and agent, while the federal government uses regulatory

8 Opting Out 7 mechanisms (e.g. Cohort Default Rate policies) to monitor and sanction colleges to ensure they comply with federal financial aid policy goals. The U.S. Department of Education monitors and sanctions colleges through its CDR policy. As discussed previously, if a college s CDR exceeds 30 percent for three consecutive years (or 40 percent in any given year) they will be temporarily barred from participating in all Title IV programs. Although relatively few community college students borrow federal loans, the average CDR is 20.9 percent in this sector, putting them above the national average and approaching federal sanction levels (U.S. Department of Education, 2013). As self-interested agents, community colleges will not want CDR sanctions to threaten their ability to provide grant aid. Like the example of San Bernardino Valley College, it is in the agent s best interest to opt out of the federal loan program; however, opting out may not be in line with the U.S. Department of Education s policy goals. In fact, it may work against federal goals by pushing more students into the private lending market that has fewer consumer protections than federal loans (Consumer Financial Protection Bureau, 2012). There is clearly a policy dilemma here and one that is understood through the lens of PAT. Because of these goal conflicts, community colleges have an incentive to opt out of federal loan programs. As the principal, federal officials (and, as in the North Carolina example, even state officials) may view this as a shirking of responsibility and one where greater oversight and monitoring is warranted. The policy implications are discussed later, but for now it is important to consider the primary causes and potential consequences of opting out of federal loan programs. Whether colleges can affect their student loan default rates is a question that has come under increased scrutiny in recent years, where some observers believe institutions should not be

9 Opting Out 8 held accountable for whether their students are able to repay loan debt (Knapp & Seaks, 1992; Monteverde, 2000). However, a growing body of evidence suggests that, even after controlling for students academic, socioeconomic, and demographic characteristics, colleges have a systematic relationship with whether their students default on loans (Deming, Goldin, & Katz, 2012; Gross, Cekic, Hossler, & Hillman, 2009; Hillman, 2014). From this literature, we have learned that loan debt is not a strong predictor of default; instead, leaving college before earning a degree and being unemployed are the two strongest predictors of default. There are also systematic patterns along lines of race/ethnicity, where defaults tend to concentrate among colleges that serve high numbers of Black and Hispanic students. Community colleges serving minority students and those located in areas with high unemployment rates may be more likely to opt out of federal loan programs in order to avoid facing federal sanctions (and to retain access to federal grant and other Title IV programs). Data sources Data for this analysis are combined from multiple U.S. Department of Education datasets for the academic years 2002 through First, it uses federal Title IV financial aid program data from the office of Federal Student Aid (FSA). This dataset provides information on each institution s eligibility status for participating in federal aid programs, along with the total volume of grant and loan funds disbursed by public, nonprofit, and proprietary institutions of higher education. Federal loan programs include all subsidized and unsubsidized Stafford loans (Direct or FFELP) and grant programs include Pell, American Competitiveness/SMART, Iraq/Afghanistan service grants, and TEACH grants. Second, it merges these records with the Integrated Postsecondary Education Data Systems (IPEDS), which provides details on each college s enrollment, finance, and institutional

10 Opting Out 9 characteristics. This data allows us to examine the racial profile of students, tuition levels, expenditures per student, and the sector, Carnegie classification, and region of each college. The third dataset includes Cohort Default Rate data from the office of Federal Student Aid, which provides the number and rate of defaults that occur at each institution participating in loan programs. And the fourth is county-level labor force data from the Bureau of Labor Statistics, where linked each community college to their county s unemployment rate for each year. The full sample includes 4,159 public, nonprofit, and proprietary colleges from four-year, two-year, and less-than two-year sectors of higher education. We use this full sample only to show that community colleges are the most-likely group to opt out of federal loan programs (i.e., to answer the first research question). We then narrow this sample to our analytical sample of public two-year colleges (n=949) that reported data for all survey years. Among these colleges, approximately 170 opted out of federal loan programs each year. If a college was eligible to receive Title IV funds in a given year and did not disburse student loans that year, then they were coded as an opt out institution. As described later, approximately 18 percent of eligible community colleges opted out of offering federal loans in any given year between 2002 and Analytical technique and hypotheses The first research question regarding the extent to which colleges opt out of loan programs is answered through descriptive time-series statistics. We examine the number of optout colleges in each sector for a given year, relative to the total number of colleges in that sector for a given year. This allows us to examine both national trends in opting out, along with sectorspecific trends to see how frequently colleges restrict access to federal student loans. This analysis allows us to see that while community colleges are indeed the most common sector to

11 Opting Out 10 opt-out, this is not a phenomenon that is restricted to only these institutions. The second research question regarding the factors associated with opting out of loan programs. To estimate these relationships, we use a panel data logistic regression model, where the outcome variable is dummy-coded 1 if a college is an opt out institution and 0 otherwise. This is a discrete timeseries technique, where the event of opting out of loan programs can occur in any year and postevent observations are excluded (Allison, 1982, 1994). 1 Because clustered standard errors are unavailable, we used bootstrap standard errors with 50 replications. Results are entered into two models. First are the racial/ethnic profile of the student body (White, Black, and Hispanic), the share of students receiving federal grants, tuition and fees charged, and local unemployment rates. The enrollment and tuition variables are converted to their natural logs. These four groups of variables allow us to assess whether colleges that opt out of loan programs serve diverse populations, are highly reliant on federal grant aid, charge lower tuition, or are located in areas with high unemployment. The second model adds CDR data to allow us to determine whether past default rates or serving low numbers of borrowers is associated with opting out of loan programs. Since colleges that opted out of loan programs have no borrowers, they also have no cohort default rate. Several colleges opted out of loan programs prior to 2002 and stayed out of the loan programs through 2012; we have no CDR records for these institutions. However, there are 96 institutions that opted out after 2002, thus providing data on both CDRs and number of borrowers. In the second model, we include only those that opted out after 2002, thus providing us with CDR data or borrowing records. While we lose observations, we gain some insights into the relationship between CDR, borrowing, and opting out. 1 This is implemented in Stata via the xtlogit command.

12 Opting Out 11 Hypotheses. Based on previous research, where minority, lower-income, and unemployed borrowers are more likely to default on their loans, we hypothesize that colleges serving these students will be more likely to opt out of loan programs. We suspect opting out will be positively related to the number of minority and low-income students served, and with local unemployment rates. We also suspect colleges will be more likely to opt out if they are heavily dependent on federal grant programs: losing access to Title IV funding would be especially impactful for these colleges. Relatedly, colleges that serve low numbers of borrowers will likely opt out at higher rates than colleges with large borrowing cohorts. Finally, we hypothesize that a college s CDR is positively related to opting out because a college may choose to leave the loan program altogether in an effort to protect the institution from losing all Title IV funding. The variables selected in the analysis allow us to explore each of these possibilities. Limitations This study is limited in at least three key ways. First, the dataset is left-censored because it includes colleges that were already coded as an opt out institution in the first year. We have no CDR or borrowing data for colleges that opted out of loans prior to 2002, which could bias our estimates. While we are not positioning this paper as a causal analysis, it is important to note that this could limit the internal validity of the models entered in Model 2. Second, there are any number of reasons why a college might opt out of federal loan programs, most of these are due to self-selection. In rare cases (like North Carolina) are there exogenous shocks that force colleges into loan programs. Accordingly, our results should be interpreted as correlational and not causal. For instance, just because a college is located in a high-unemployment area or that it serves large numbers of Black students does not mean that these factors caused the college to opt out. Third, because our outcome measures whether a college opted out at any time between 2002

13 Opting Out 12 and 2012, it is time invariant. Using a fixed-effects regression would typically be used in a panel regression analysis, but doing so would eliminate all opt-out institutions from the analysis. Therefore, we employ a random effects model that assumes institution-specific effects are uncorrelated with other independent variables in the model. Key findings How extensive is the opt out phenomenon? As displayed in Table 1, approximately 9 percent of all colleges opt out of federal student loan programs in any given year, though this rate varies considerably across different sectors. Across all sectors, the share of colleges opting out has been declining since 2002, when 424 of the 4,159 colleges in the sample (10 percent) opted out of loan programs. By 2012, however, the total number of opt outs had dropped to 310 (7 percent). The majority of opt-out institutions are in the public two-year and public less-than twoyear sectors, which accounts for approximately three of every four opt out college in the country. Next largest is the proprietary less-than two-year colleges (e.g. Knox Beauty College, Massachusetts School of Barbering, etc.), where 129 colleges opted out in 2002 but by 2012 this number had dropped to 58. Notably, no proprietary four-year colleges opted out of federal loan programs during this time and very few non-profit and proprietary two-year colleges opt out of loan programs. [Insert Table 1 about here] Considering that public two-year colleges account for the majority of all opt-outs, and to help situate the context for the second research question, how common is opting out within this sector? In 2002, 19 percent of all public two-year colleges did not provide access to federal student loans. In 2002, there were 180 community colleges not providing federal loans, but by

14 Opting Out this number dropped to 153. This shows that not all colleges stay out of loan programs once they opt out; a growing number of institutions that were once opted out are now opting into loan programs. A similar trend is occurring in the public less-than two-year sector, but on a different scale. In 2002, 30 percent of public less-than two-year colleges did not participate in federal loan programs, but by 2012 this figure dropped to 25 percent. For the purposes of this analysis, we only focus on public two-year colleges, though we suspect further research could examine the less-than two-year sector. What organizational factors are associated with opting out within the community college sector? Table 2 describes the characteristics of community colleges in the sample, where the first column represents all institutions (n=877), the second describes those that ever opted out of the federal loan system (n=192), and the third describes those that never opted out between 2002 and 2012 (n=685). On average, the length of time that colleges stayed out of the federal loan program was approximately 8 years. Colleges that opted out tend to have higher shares of low-income students than those that never opted out. Approximately 33.7 percent of undergraduates receive federal grants at opt-out colleges, but this figure is 27.7 percent among colleges that never opted out. Opt-out colleges tend to be smaller than those that never opted out, where the number of white, black, and Hispanic students (12-month headcount) is approximately 5,783, while those colleges that never opted out enroll approximately 9,854 students fitting these racial/ethnic backgrounds. Opt-out colleges enroll smaller shares of white students than other colleges, thus enrolling more black and Hispanic students than other colleges. Opt-out colleges also charge lower tuition levels than other colleges ($2,044 compared against $3,082) and they are located in

15 Opting Out 14 counties that have higher unemployment rates (7.4 percent) than colleges that never opted out (6.8 percent). Prior to opting out of loan programs, these colleges had fewer borrowers in their official cohort default rate calculations (120) compared to colleges that never opted out (562). However, opt-out institutions had higher two-year CDRs than other colleges, 13.3 percent compared against 9.2 percent, respectively. Three-year CDR data was not collected and reported until the 2008 academic year, though a similar pattern is found when comparing institutions on this measure. For the purposes of this analysis, however, we focus on the two-year CDR. These descriptive statistics help show the general patterns that differentiate these colleges, while the regression results help us understand the relationship between these variables and each college s opt-out status over time. [Insert Table 2 about here] Table 3 displays the regression results, where Model 1 provides the odds ratios of the relationship between opting out and each college s enrollment profile, tuition, unemployment, and grant aid. As anticipated, there are systematic relationships between students race/ethnicity and whether that college opts out of federal loan programs. Colleges serving more White and Hispanic students tend to have lower odds of opting out, while increases in Black enrollments are associated greater odds of opting out. Similarly, as tuition and fees rise for a community college, the odds of opting out of federal loan programs decrease. Although we suspected that unemployment and the share of students receiving federal grants would be positively associated with opting out, the evidence presented in Model 1 does not support this hypothesis. Excluding the colleges that opted out for the entire duration of this analysis (2002 through 2012), we run Model 2 which allows us to include CDRs and the number of borrowers

16 Opting Out 15 for colleges that opted out after Here, we find the same patterns as discussed in the previous paragraph, with two changes. First, the number of white students enrolled is no longer statistically significant; and second, local unemployment rates becomes significant. Interestingly, Model 2 shows that a college s CDR is not a significant predictor of whether they opted out of loan programs. However, as the number of borrowers included in CDR cohorts rises, the odds of opting out begin to decline (i.e., colleges with smaller numbers of borrowers have greater odds of opting out). Summary. Taken together, we are able to provide some preliminary answers to our two research questions. First, one in every 14 colleges in the U.S. (7 percent) does not participate in federal student loan programs. Most of these institutions are community colleges, though a large share is in the public and proprietary less-than two-year sector. The incidence of opting out of loan programs is on the decline: 424 colleges opted out in 2002, but by 2012 that figured dropped to 310. When focusing on the community college sector, colleges have greater odds of opting out if they enroll larger numbers of Black students. The odds of opting out are lower for colleges that serve few lower numbers of Hispanic students. Colleges located in areas of higher unemployment tend to have greater odds of opting out, and those charging higher tuition are associated with lowers odds of opting out. Interestingly, the share of students receiving federal grants was not systematically related to whether a college opted out; however, colleges with a higher number of borrowers in a CDR cohort also have lower odds of opting out (i.e., smaller borrowing cohorts have higher odds of opting out). Discussion and implications Our study is the first to examine trends over time with regard to opting out of student loan programs. Accordingly, our goal in this analysis was exploratory; we are describing broad

17 Opting Out 16 trends and patterns associated with opting out of federal loan programs. Although we found that the share of colleges opting out of federal loan programs is declining, there are hundreds of colleges that do not provide students access to federal loans. Under the principal-agent framework, some may view community colleges as shirking on their responsibility because they are not providing equal access to student aid. Instead, community colleges could be seen as selfserving agents, focused on their own best interest of avoiding potential CDR sanctions, thus ensuring access to other Title IV funds (e.g., Pell Grants). The San Bernardino Valley College example illustrates this tension. By opting out of the federal loan program, the colleges was able to retain access to millions of dollars in federal Pell Grants for thousands of students. That 33 of the college s 156 students defaulted on their loans would jeopardize the wellbeing of thousands of low-income students complicates the notion of shirking in the principal-agent framework. Opting out of federal loan programs may be a very rational and well-intentioned course of action for some colleges. Rather than penalizing these institutions, federal CDR policies may need to be revised in ways that are sensitive to the perverse incentives and unintended consequences this policy appears to have created. Results from this analysis suggest that colleges like San Bernardino Valley College are more likely to opt out of loan programs than are other colleges. These institutions are located in areas of high unemployment, and they serve minority students who are disproportionately affected by structural inequalities in the labor market. Because of these factors, these institutions may be at risk of losing access to all Title IV aid if their students fail to make on-time loan payments. Instead of creating an incentive for colleges to opt out of loan programs, federal policymakers should reform its CDR calculations to account for these nuances. Additionally, the U.S. Department of Education, along with professional membership organizations such as the

18 Opting Out 17 National Association of Student Financial Aid Administrators or the American Association of Community Colleges, could further engage in outreach and professional development opportunities to help community college leaders understand there are ways for colleges to be protected from CDR sanctions if they serve small numbers of borrowers. There is an exemption to the CDR sanction, where colleges with fewer than 30 borrowers can have their CDR calculated with an alternative formula that is less prohibitive than the standard formula. Through federal reforms to the CDR policy, along with improving institutional best practices, community colleges may be able to do both: disburse grant aid to financially needy students and supplement them via federal loans. Currently, students attending an opt out college will likely turn to private student loans to finance their college education. Doing so can be a risky endeavor because these loans carry higher interest rates and fewer protections than federal loans. Extending the results from this analysis, it is likely that this would disproportionately occur for Black students and those living in areas of high unemployment. The unintended consequences of opting out of student loan programs are extensive and should be explored in further research. How did opting out affect student access? How did it affect affordability? How might changes in CDR policy change a college s odds of opting out of loan programs? These are next in a series of questions that could be asked in this line of research. Considering that community colleges are a key point of access for today s college student, careful consideration of the unintended consequences of federal policy efforts (e.g., CDR), along with unintended consequences of campus administrative decisions (e.g., opting out) should be explored in much more depth.

19 Opting Out 18 Resources Allison, P. D. (1982). Discrete-time methods for the analysis of event histories. Sociological Methodology, 13(1), Allison, P. D. (1994). Using panel data to estimate the effects of events. Sociological Methods & Research, 23(2), Braun, D., & Guston, D. H. (2003). Principal-agent theory and research policy: an introduction. Science and Public Policy, 30(5), Consumer Financial Protection Bureau. (2012). Private Student Loans Report. Washington, D.C.: Consumer Financial Protection Bureau. Retrieved from Davis, K. (2011, April 11). Gov. Perdue vetoes community college loan program opt-out bill and teacher and state worker health plan bill. Carolina Public Press. Raleigh, N.C. Retrieved from Deming, D. J., Goldin, C., & Katz, L. F. (2012). The for-profit postsecondary school sector: nimble critters or agile predators? Journal of Economic Perspectives, 26(1), doi: /jep General Assembly of North Carolina. (2011). Community Colleges/Opt Out of Federal Loan Program (Legislative Fiscal Note). Raleigh, N.C.: Fiscal Research Division. Retrieved from Gross, J. P., Cekic, O., Hossler, D., & Hillman, N. (2009). What matters in student loan default: A review of the research literature. Journal of Student Financial Aid, 39(1), Hillman, N. W. (2014). College on credit: a multilevel analysis of student loan default. The Review of Higher Education, 37(2), Huckabee, C. (2012). Voiding a Veto, N.C. Lawmakers Let Community Colleges Opt Out of Student-Loan Program. Chronicle of Higher Education. Retrieved November 12, 2013, from Knapp, L. G., & Seaks, T. G. (1992). An Analysis of the Probability of Default on Federally Guranteed Student Loans. The Review of Economics and Statistics, 74(3), Lane, J. E., & Kivisto, J. A. (2008). Interests, information, and incentives in higher education: Principal-agent theory and its potential applications to the study of higher education governance. In Higher Education (pp ). Springer. Retrieved from Monteverde, K. (2000). Managing student loan default risk: evidence from a privately guaranteed portfolio. Research in Higher Education, 41(3), National Center for Education Statistics. (2011). Trends in Student Financing of Undergraduate Education: Selected Years, to Washington, D.C.: U.S. Department of Education. Retrieved from

20 Opting Out 19 National Center for Education Statistics. (2013) National Postsecondary Student Aid Study (NPSAS:12): Student Financial Aid Estimates for First Look. (No. 165). Washington, D.C.: National Center for Education Statistics. The Institute for College Access and Success. (2011). Still Denied: How Community Colleges Shortchange Students by Not Offering Federal Loans. San Francisco, CA: The Institute for College Access and Success. Retrieved from U.S. Department of Education. (2013). National Student Loan Default Rates. Retrieved September 27, 2013, from U.S. Department of Education. (2014). College Accreditation in the United States. Accreditation in the United States. Educational Guides. Retrieved March 6, 2014, from Waterman, R. W., & Meier, K. J. (1998). Principal-agent models: an expansion? Journal of Public Administration Research and Theory, 8(2).

21 Figure 1: States where community colleges opted out of federal loans any time between 2002 and 2012 Note: AK and HI are excluded, but these states had no community college opt outs during this period.

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